MSCI to add mainland China shares to key benchmark

MSCI to add mainland China shares to key benchmark

Inclusion in the index is seen as significant for China's stock markets because many overseas investors measure the performance of their portfolios against MSCI indexes and are obliged to buy shares in them.

MSCI then raised new worries associated with the widespread, extended trading suspension of many A shares, which took place in China's 2016 stock market rout.

MSCI will include 222 large capitalization Chinese stocks in its MSCI Emerging Markets Index, representing 0.73 percent of the index.

"MSCI's decision to include A shares in its Emerging Markets Index is a pivotal moment for global investment in China's capital markets".

The MSCI EM Index previously excluded China's domestically traded, yuan-denominated stocks, or so-called A-shares. The move will pressure markets, especially those with exposure to China, such as Australia, but the gradualness of the move should prevent any wild swings. Investors will also be watching the next wave of economic data to get a better sense of how the overall economy is fairing.

The acceptance of some Chinese A shares into MSCI's Emerging Markets Index was seen as a symbolic win for Beijing after three failed attempts.

The full inclusion of domestic Chinese stocks in the widely Tracked MSCI Emerging Markets Index could pull more than $400 billion of funds from asset managers, pension funds and insurers into mainland China's equity markets over the next decade, according to analysts.




Lieblich said on the press call that the oil producing nation's highly anticipated Saudi Aramco initial public offering "will have absolutely no bearing on our decision to include the Saudi Arabia index into the EM index". "In general, blue chips and large cap stocks in the A share markets with stable dividend policies are expected to outperform".

Still, if MSCI again rejects inclusion, the impact on Chinese markets "could be rather limited", he said.

But Yan Kaiwen, an analyst with China Fortune Securities, said he believes inclusion of A-shares is "not that likely". MSCI's decision has been closely-watched as a sign of China's growing importance on global financial markets.

Wall Street had been watching with interest for the decision, since dozens of funds - including $32 billion iShares Emerging Markets (EEM) - track or are benchmarked to MSCI Emerging Markets Index.

The Hang Seng Index fell 0.93 percent, but mainland markets made modest gains. These "Stock Connect" links give foreign investors wider access to the mainland's markets, which are mostly restricted to local investors.

Major issues included too many trading halts and concerns over quotas, specifically whether Chinese authorities would put limitations over how much could be invested or withdrawn. "You think you're getting broad emerging markets, but you may not be". "Tech stocks are getting a short-term boost from the Hong Kong proposal to set up a new exchange".

The company has been in discussions with Chinese regulators and global investors for almost four years on whether to add yuan-denominated shares listed in Shanghai and Shenzhen to the benchmark.

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